06 June 2013

IPE: France - Where is the new pension reform going?

The good news for the French government was that Brussels took into consideration its request after it argued that two more years would be necessary to bring the deficit under the EU limit of 3 per cent of GDP. But the concession came at a price.

In return for the delay, the Commission recommended France tackle a number of fiscal measures to revive its economy. Among the recommendations, one was directly linked to new pension reforms, something on which the government is currently working. The humiliation for France on this was not insignificant. So, instead of endorsing the recommendations, Hollande rejected that France needed any lessons from Brussels on to how manage its economy. After all, many Member States in the EU would be likely to take a similar approach.

The Commission specifically called on France to take measures by the end of 2013 while avoiding an increase in employers' social contributions. According to Brussels, higher contributions would lead to an additional drag on small and mid-cap companies. Moreover, they would come in direct opposition to the measures already taken by the government to help businesses become more competitive. This, in turn, could have a serious impact on an unemployment rate that keeps on growing.

Nothing is written in stone, of course, and the measures suggested by the panel are mere rumours for now. But if the government were really to increase employer contributions, it would hurt not only its relationship with Brussels but, more importantly, its own businesses. At a time when all eyes are fixed on the unemployment rate, the government would do well to think through pensions reform more carefully.

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